With Falwell as Education Adviser, His Own University Could Benefit

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Jerry Falwell Jr., the president of Liberty University and a campaign ally of Donald J. Trump, will reportedly lead a Trump administration task force charged with deregulating higher education.CreditCreditDamon Winter/The New York Times

By Kevin Carey

Feb. 1, 2017

On Tuesday, The Chronicle of Higher Education reported that Jerry Falwell Jr., president of Liberty University, would lead a Trump administration task force charged with deregulating American higher education.

In describing his goals, Mr. Falwell focused on rolling back a series of initiatives that the Obama administration viewed as preventing abuses by predatory for-profit colleges. “The goal is to pare it back and give colleges and their accrediting agencies more leeway in governing their affairs,” Mr. Falwell told a Chronicle reporter.

One nonprofit university that could benefit from this kind of regulatory retrenchment is Liberty University itself.

Mr. Falwell alluded to two Obama initiatives: tightened standards for accrediting organizations that grant colleges access to federal financial aid, and new regulations that govern how students who have been cheated by fraudulent colleges can have their student loans forgiven.

The Obama accreditation standards were used last summer to shut down the accrediting organization that oversaw the corporate chains ITT Tech and Corinthian Colleges, both of which collapsed in bankruptcy after allegations of wrongdoing. The same organization oversaw numerous other for-profit schools with a history of high student loan default rates and deceit.

The Department of Education then created regulations to aid students who had been left holding large loan balances and worthless diplomas. In addition to granting those students debt relief, the department issued new college performance standards, devised to prevent future fraud from occurring.

Some fraudulent colleges made enormous sums of money by enrolling tens of thousands of students online — an approach that can provide many benefits when done well, but also creates potential for abuse.

It makes sense that President Trump would turn to Mr. Falwell for advice in this area. Liberty University provided a prominent platform for Mr. Trump to reach evangelical Christians early in the G.O.P. primary campaign.

And Liberty, at first glance, isn’t in the same category as for-profit colleges. It enrolls about 14,000 students, most of whom are evangelical Christians, at its residential campus in Lynchburg, Va. But it also enrolls an additional 65,000 students online. Most colleges now have a mix of residential and online students, but it’s almost unheard-of to have four times as many online students as residential students.

Because internet courses are cheap to deliver at scale, the online division is a big revenue driver for Liberty, which brought in $591 million in tuition in 2013, against $470 million in expenses. Liberty is essentially a medium-size nonprofit college that owns a huge for-profit college.

The giant for-profit University of Phoenix enrolls more online students (over 100,000) than any other college. The second-largest online enrollment is at Liberty. Financially, the main difference between the two is that Liberty doesn’t pay taxes. Liberty’s marketing and recruitment are driven by an 800-person telemarketing call center in a former Sears department store near the main campus.

Most of the tuition for Liberty’s online students comes from financial aid provided by the federal Department of Education, the same body that Mr. Falwell says is engaged in “overreaching regulation.”

In 2015, Liberty received $347 million from federal undergraduate grant and loan programs. Few other private nonprofit colleges receive anything like that sum. To put the amount in perspective, the highly regarded University of Virginia, a nearby state university, received $37 million from the same sources that year. Arizona State, the nation’s largest public university, received $169 million. Liberty’s considerable financial success — it has built a $1 billion cash reserve, and Mr. Falwell is paid more than $900,000 a year — was underwritten largely by the federal taxpayer.

Unfortunately, many Liberty students are struggling to repay their federal loans. Around 9 percent default within three years of graduating, ruining their credit ratings and creating financial burdens nearly impossible to discharge in bankruptcy. Among all private nonprofit four-year colleges, the average default rate is 6.5 percent.

Most Liberty students avoid default, but many are making no progress in reducing their loan balances. Only 38 percent of Liberty borrowers manage to pay down as little as one dollar on their student loan principal within three years of leaving school. This is probably because many struggle to land well-paying jobs. Forty-one percent of former Liberty students earn less than $25,000 per year — the typical salary for people with only a high school diploma at age 25 — six years after entering college.

The Obama administration’s borrower protections require for-profit colleges with loan repayment rates below 50 percent to prominently note this fact, like lung cancer warnings on the side of a cigarette package, in promotional materials. The label must read, verbatim, “U.S. Department of Education Warning: A majority of recent student loan borrowers at this school are not paying down their loans.”

Because it is technically a nonprofit (albeit a very profitable one), Liberty is exempt from these rules. But the fact remains that Mr. Falwell seems bent on repealing regulations that, in the standards they set for minimally acceptable results, paint his own university in a bad light. And because it is exempt from for-profit regulations, Liberty is ultimately accountable only to state regulators and the college’s accrediting organization.

If Mr. Falwell’s task force does indeed recommend rolling back the tougher accrediting standards pushed by the Department of Education, it will heighten a continuing debate in higher education about the optimal balance between government oversight and individual choice among consumers and colleges. Some Republican lawmakers have called for scaling back what Senator Lamar Alexander, the Senate’s education committee chairman, has called “a jungle of red tape.” Democrats like Senator Elizabeth Warren, by contrast, criticized the Obama administration for not going far enough to protect students.

But the Trump task force that Mr. Falwell is planning to spearhead does not appear to be focused on any kind of middle ground.

Kevin Carey directs the education policy program at the New America Foundation.